Date of Report: October 25, 2024
Broker: UOB Kay Hian
Company Overview
TAL Education Group provides K-12 after-school tutoring services in China. The company offers comprehensive tutoring services to K-12 students through its well-known brands, including Peiyou and xueersi.com.
Stock Data
- Share Price: US$10.12
- Target Price: US$14.00
- Market Cap: US$6,461.4 million
- Shares Issued: 491.0 million
- 3-Month Average Daily Turnover: US$76.9 million
- 52-Week High/Low: US$15.52 / US$7.35
Price Performance
- 1 Month: +36.2%
- 3 Months: +1.2%
- 6 Months: -13.9%
- 1 Year: +6.4%
- Year-to-Date: -19.9%
Major Shareholders
- Morgan Stanley: 4.5%
- BlackRock Inc: 4.4%
- Krane Funds Advisors LLC: 3.7%
Financial Results for 2QFY25
- Revenue: US$619 million (up 50% YoY, 3% above consensus estimates)
- Gross Profit: US$349 million (up 44% YoY)
- Gross Margin: 56% (narrowed by 3ppt YoY)
- Non-GAAP Net Profit: US$74 million (compared to consensus estimate of US$44 million)
Quarterly Financial Overview
| Metric |
2QFY24 |
1QFY25 |
2QFY25 |
QoQ |
YoY |
UOB Var |
Cons Var |
| Revenue (US$m) |
412 |
414 |
619 |
50% |
50% |
587 |
600 |
| COGS (US$m) |
169 |
200 |
271 |
35% |
60% |
276 |
-2% |
| Gross Profit (US$m) |
243 |
214 |
349 |
63% |
44% |
310 |
12% |
| Operating Profit (US$m) |
32 |
-17 |
48 |
n.m. |
50% |
17 |
180% |
| Net Income (US$m) |
38 |
11 |
57 |
n.m. |
52% |
33 |
74% |
Key Financial Metrics
- FY25 NAV/Share: US$102.65
- FY25 Net Cash/Share: US$30.67
- Consensus Net Profit FY25: Estimated at US$45.6 million
Business Insights
- AI Learning Devices: TAL launched lower-priced AI learning devices in August 2024, contributing to revenue growth.
- Sales Performance: In September 2024, TAL sold 90,000 learning tablets on major e-commerce platforms, generating GMV of RMB 438 million, a significant increase from previous months.
- Deferred Revenue: Increased by 59% YoY to US$517.6 million in 2QFY25, indicating a positive outlook for FY25.
Strategic Initiatives
- TAL’s product roadmap includes integrating AI features into existing products and developing AI-native applications, enhancing learning experiences through real-time engagement.
Shareholder Return
- The share repurchase program was extended in April 2024, allowing TAL to spend up to US$503.8 million to repurchase its common shares through April 30, 2025.
Risks and Forecasts
- Revenue Growth Forecasts: Expected to grow 43% YoY to US$536 million in 3QFY25.
- Operational Risks: Includes margin weakness due to heavy investments and potential impacts from U.S.-China tensions.
Valuation and Recommendation
- Target Price: Raised to US$14.00, maintaining a “BUY” recommendation based on a sum-of-the-parts valuation. The company trades at 16x FY25F PE, with expectations for further earnings visibility in FY25.
